Yen holds as Treasury curve inverts driving safe haven rush

The US dollar and yen movements reflect the investor sentiment towards safe havens. (Reuters pic)

TOKYO: In early Asian trade on Thursday, the yen held gains against other major currencies as growing signs of a global economic slump and falling Treasury yields again drove investors back into safe-haven assets.

The dollar was a little lower at 105.86 yen. On Wednesday, the yen rallied 0.8% versus the greenback, its biggest daily gain in two weeks.

The dollar index, which measures its value against a basket of six major currencies, stood at 97.955 after a 0.2% gain on Wednesday.

Against the dollar, the Swiss franc last traded at 0.9734, holding on to a 0.3% gain posted on Wednesday.

Spot gold, which is usually bought in times of economic uncertainty, rose 0.3% toward the highest in six years as investors fled stocks and sought safe-haven assets after the US Treasury yield curve inversion and US stocks were sold off sharply.

The US Treasury yield curve inverted on Wednesday for the first time since June 2007. The inversion, where 2-year yields trade higher than 10-year yields, is considered by some analysts to be a worrying sign that the US economy is likely to enter a recession.

In Asian trade, 10-year Treasury yields slumped to the lowest since September 2016 and 30-year Treasury yields fell to an all-time low of 1.9910% while 30-year Treasury yields broke below the 2% floor for the U.S. Federal Reserve’s policy rate.

Sentiment was already fragile after economic data from China and Germany revealed the extent of the damage the US-China trade war is causing two of the world’s largest exporters.

“When volatility rises, dollar/yen becomes strongly correlated with Treasury yields, so the currency pair has more room to fall,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo. “I expect other safe havens to rise. The mood is downbeat, because of the trade war and bad economic data.”